How Hirko settlement came together

Six days before the John Hirko Jr. settlement, Bethlehem Mayor John Callahan and lawyers involved in the negotiations made a key decision: They agreed that the talks would be about more than just money.

Both sides acknowledged that the police force had to be improved. And both sides wanted to prevent a recurrence of the deadly 1997 drug raid that led police to shoot Hirko 11 times.

Callahan told Hirko family lawyer John Karoly Jr. that the city was willing to make police reforms part of the settlement, that the city had gotten the message that the police force needed reforms.

''We don't need a $30 million verdict,'' Callahan told Karoly. ''You don't need to send a $30 million message to the taxpayers of Bethlehem.''

It was something Karoly and his clients had been waiting to hear for seven years  that city officials recognized police had erred during the disastrous raid.

Without that new direction in the settlement talks  and without the willingness of Karoly's side to compromise financially  the case might not have been settled last week. The city would have continued with the trial, risking a huge damages verdict.

For Karoly and his clients, the breakthrough meant their efforts would contribute to improving Bethlehem's police force without causing excessive financial hardships on the taxpayers.

''We were able to do with the settlement what we couldn't do with the verdict,'' Karoly said, referring to the reform commitments. The settlement also requires the city to pay $7.89 million to the plaintiffs.

Callahan, who had been in office only two months, would later apologize in person to Karoly's clients  Hirko's mother, fiancee and landlord  for the actions of police. That act, only hours before the settlement was reached, reinforced in their minds that Callahan was sincere about changing the police force.

Callahan used two of his strengths  his ability to communicate with people one on one and his willingness to admit mistakes  to bring an end to a six-month trial without bankrupting the city.

Haggling over a number

Before the trial, circumstances had made it exceptionally difficult to settle the case. Karoly was seeking $20 million, but the city had only $500,000 of insurance coverage.

U.S. District Judge James Knoll Gardner suggested a $3.5 million settlement, a figure that neither side liked. So the case went to trial in Allentown in late September.

Both sides aggressively presented their positions during the trial. Meanwhile, the relationship between lawyers on opposing sides became more and more strained from their daily courtroom battles. Together, they presented dozens of witnesses and hundreds of exhibits.

The first phase of the trial would be a liability phase to determine whether the police had violated the civil rights of Hirko, his fiancee, Kristin Fodi, and his landlord, Tuan Hoang. The second phase, if needed, would be to determine how much the defendants would pay for their wrongdoing.

During the first part, Karoly presented evidence indicating that officer Joseph Riedy had shot the suspected drug dealer with a submachine gun. Before shooting Hirko, Riedy tossed a flash-bang distraction device into Hirko's South Side home, accidentally setting the house on fire and badly burning Hirko's body.

Bethlehem's defense team maintained that the police had acted properly. Police claimed Hirko had fired a shot at them, even though there was no physical evidence to support that position.

On Feb. 20, the jury began deliberating.On March 4, the jury announced its decision: Police had used excessive force in shooting Hirko. In addition, the city had failed to properly supervise the officers on the raid and failed to create policies to govern the Emergency Response Team.

Minutes after the verdict, Gardner gathered the lawyers in his chambers, suggesting they consider settlement talks. He delayed the damages phase for two weeks, until March 17, to accommodate jurors' schedules.

Karoly told the judge that if there was a damages phase, he believed the jury would return with a ''record'' verdict. ''I don't believe the city can come close to what we're thinking about with a settlement,'' Karoly said.

Stephen Ledva Jr., the city's chief defense lawyer, said he needed a week to find out the city's position. ''Even with a tin can and a string, he ought to be able to communicate quicker than that,'' Karoly replied.

A week later, on Friday, March 12, Ledva got back to the judge and requested a meeting. Gardner asked the parties to gather at the federal courthouse in Philadelphia on Monday, March 15, where the judge would be working that day.

Karoly said later that he resisted going to Philadelphia, not believing Bethlehem officials would bargain in good faith and not wanting to waste time he could use to prepare for the damages phase. Karoly also doubted whether the city, which has a $46 million annual budget, could afford to meet his demands, saying he wouldn't be surprised if the jurors returned with a $100 million verdict.

''Judge,'' Karoly told Gardner on the telephone, ''that's not beyond the realm of possibility after what they've heard in this case. These people are serious, and they want to send a message.''

Karoly asked his clients to be available Monday but warned them not to expect much.

On Monday, according to Karoly, the two sides spent a half hour discussing how to proceed. Karoly insisted Ledva go first because he had requested the session. The city offered to pay $1 million immediately and $2 million over time.

Incensed, Karoly slammed his notebook shut and got ready to leave. But Gardner told him to respond with his own offer. Thirty million dollars, Karoly said.

Karoly, viewing Ledva as an obstructionist, requested that he be able to meet directly with Callahan. The mayor and the new city solicitor, John Spirk Jr., agreed. Callahan wasn't worried about Karoly's reputation as a savvy, aggressive attorney.

''I felt Jack and I were perfectly capable of holding our own with John Karoly,'' Callahan said later.

The next day, Callahan and Spirk went to Karoly's South Whitehall Township office. Karoly had known Spirk for years as a former Northampton County prosecutor and trusted him.

He reminded Callahan and Spirk that he had sought $20 million before the trial and that he had won the first phase of the trial. Less than $20 million would not be acceptable.

But Karoly, who was being criticized by the public as being greedy, added that he was interested in more than just money. His clients wanted some assurance that no one else would have to endure what Hirko went through. If the city offered enough money, his clients would be willing to create a ''civil rights center'' on former Bethlehem Steel land to educate police and other people.

''I would be the happiest guy in the world if I didn't have another civil rights case in the city of Bethlehem,'' Karoly said.

City officials had already been considering ways to put police reforms on the table. Spirk's idea was for the police force to become certified by the Commission on Accreditation of Law Enforcement Agencies, an organization with 450 standards for police departments to follow.

The city knew that the police force had improved since the 1997 raid and that one-third of its officers had been sworn in since then.

''The lawyer and the car driving off in the sunset with a bag of money isn't a great ending to the book,'' Callahan told Karoly. ''We've heard the message. Bankrupting the city is not going to improve the Police Department.''

That morning, the two sides had made progress, not just by talking about something other than money, but also by gaining respect for each other.

'Sorry for everybody'

By now, with only two days until the damages phase, the two sides were running out of time to negotiate. So they asked Gardner for a postponement. Gardner agreed to delay the second phase until Monday, March 22, as long as Karoly checked in with the judge several times a day to give their status.

Meanwhile, the two sides communicated by phone. Karoly was still hoping for a settlement that would pay out more than $20 million. But the two sides were trying to find a way to do that by only costing the city about $14 million, possibly by using a tax-free investment over 20 years.

After several days, Callahan declined that proposal because it would require too much of a tax increase. Gardner asked the two sides to meet Saturday, March 20, for another face-to-face attempt at settlement.

At 10 a.m., they gathered at the Crowne Plaza hotel in downtown Allentown. The meeting occurred in the ''Presidential Suite,'' Room 911. The main room had a dark cherry conference table with 10 high-backed chairs and a small chandelier over it. A fax machine and telephone were in the corner.

Karoly sat on one side of the table, Spirk and Callahan on the other and Gardner at the head of the table. Ledva and Susan Engle, the two defense attorneys, sat in at times. All were dressed casually except for Karoly. He wore a double-breasted sports jacket.

Gardner told them that after almost seven months in court it was ''extraordinary'' that they were still talking to each other. He asked both sides to review what had happened since their last meeting, and both sides gave similar accounts, perhaps a sign of good things to come.

Gardner told them if they wanted a settlement, both sides would have to compromise. ''In order to settle a case like this, each side has to be willing to endure some pain,'' he said.

At this point, the city was offering $5 million. But Karoly said that his expenses and attorney's fees were too high to settle for only $5 million. He had been paying expert witnesses and other costs out of his pocket for seven years, spending more than $2 million.

Gardner told Karoly that he held the city in the palm of his hands. And according to Karoly, the judge said that a financial compromise in favor of police reforms would make him and his clients ''look like heroes.''

Callahan worried that the damages verdict could be an ''astronomical'' number. He figured compensatory damages would be no more than $3 million, including Hirko's potential earnings and renovations to the landlord's property. But he knew that predicting punitive damages, meant to punish defendants for wrongdoing, was guesswork. ''That's where the sky's the limit,'' he said later.

Meanwhile, Hirko's mother, Gwendolyn Dashner, waited on the first floor with Hirko's fiancee, Fodi, and landlord, Hoang, alternating between the lobby and the bar.

That afternoon, Callahan asked if he could talk with them. Upstairs, he told them he was sorry for what had happened in 1997, prompting tears to flow. They sat on sofas and easy chairs across the room from the table where the negotiations had been taking place.

Though Callahan and the three plaintiffs declined to give much detail about the 45-minute meeting, according to Callahan, here's essentially what he said: ''I am sorry for everybody involved in this case. I am sorry for the Police Department. I am sorry for the city. I am sorry for her son.''

He also told them that something ''positive'' could come out of the tragedy. They didn't have to ''cripple'' the city for the reform message to be heard, he said.

Lawyer James Heidecker, who had assisted Karoly with the trial and spent the day with Karoly's clients, said later that Callahan's approach was pivotal. ''If he had come in with an abrasive attitude  'You tell me why we should settle it'  it wouldn't have gotten done,'' Heidecker said.

Back at City Hall, the city's business administrator calculated how much various settlement scenarios would cost the city and faxed the figures to Callahan. The lowest interest rates in decades would help the city.

As the day wore on, Dashner had to skip going to Kmart, where she works. Callahan missed a birthday party for his wife's uncle. And Karoly's wife got dressed at home to go with him to his 35th-year high school reunion. They never made it.

At the hotel, Karoly, known for his energy and zeal in pursuing cases, continued to negotiate by himself. ''I think he's such a great competitor,'' Heidecker said later. ''He refuses to give in.''

Only once during the day did Karoly seemed to lose concentration, according to Heidecker. That was when Karoly learned that Danny Khalouf, an assistant Lehigh County district attorney, had died that morning with three other men in a car crash.

Karoly and Khalouf had worked on opposite sides in criminal cases. Later, Karoly would say the the man's death helped sharpen his focus during the negotiations by emphasizing the value of life and the importance of preventing needless deaths.

''There's no good time to receive that kind of news.'' Karoly said. ''But it put into perspective what was at issue.''

Early that evening, Gardner suggested a settlement figure: about $8 million. Gardner said later that he had asked each side what its best-case and worst-case scenarios would be if the trial resulted in a damages verdict. Then he came up with a figure in between.

''It isn't an exact science,'' he said. ''It was just my sense that this was the right number and the right other conditions for this case to settle at.''

Karoly didn't like Gardner's number because he believed the damages verdict would be at least five times higher. ''This is such a discount from what a jury is going to do with this case in 10 days,'' Karoly said.

But instead of rejecting the proposal, Karoly agreed to take it to his clients without commenting on it. Downstairs, he asked his clients to discuss it among themselves. Even when they asked his opinion, Karoly declined to give it.

Finally, his clients accepted it, and so did the city. When Karoly asked his clients to confer again  this time to discuss how much each should get  each suggested that the other two deserved a bigger share of the settlement.

It was almost 11 p.m. when negotiations ended. So the lawyers agreed to get together the next day to work out the settlement language.

Karoly's clients and Heidecker had a celebratory drink in the bar. But when Karoly came downstairs, he didn't stop for a drink. Instead, he encouraged his clients to go home because they had to continue working the next day on the details.

Callahan went home exhausted but slept well knowing he had minimized the impact on taxpayers. ''I knew the city of Bethlehem would be able to survive this case and that it would not bankrupt the city of Bethlehem,'' he said.